Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • ianthy
    • By ianthy 10th Sep 17, 8:57 AM
    • 88Posts
    • 45Thanks
    ianthy
    SIPP Carry Forward Rules - Career Break
    • #1
    • 10th Sep 17, 8:57 AM
    SIPP Carry Forward Rules - Career Break 10th Sep 17 at 8:57 AM
    Hi

    My OH has just opened a SIPP and will pay the maximum this tax year. We would like to take advantage of the Carry Forward rules for the last 3 years. Slight fly in the ointment is that we were on a career break for 2 of those years. During this period, OH remained ‘employed’ and a member of the Civil Service pension scheme but with zero pay and pension contributions. From our property portfolio he received £5k from holiday let properties, his other income was classified as dividends from my Ltd Co and other rental income from normal BTL's – which I understand do not count towards pension income/contributions.


    Questions:
    1. for the 2 years on career break - can OH add for each year £2,880 and receive tax credit of £720 = £3,600.

    2. Can we select which year to contribute as Carry Forward or must it be the most recent?

    Thanks for your advice.
Page 1
    • TheTracker
    • By TheTracker 10th Sep 17, 10:27 AM
    • 1,123 Posts
    • 1,114 Thanks
    TheTracker
    • #2
    • 10th Sep 17, 10:27 AM
    • #2
    • 10th Sep 17, 10:27 AM
    He just opened a SIPP? To use carry forward you need to have had a SIPP or other type of pension in place in each of the three years. I'm not sure his civil service pension will count if he made zero provisions, suspect it would.

    Why only £2880? He can top up to 40k for each carried forward year he is eligible.
    • greenglide
    • By greenglide 10th Sep 17, 10:52 AM
    • 2,895 Posts
    • 1,867 Thanks
    greenglide
    • #3
    • 10th Sep 17, 10:52 AM
    • #3
    • 10th Sep 17, 10:52 AM
    you need to have had a SIPP or other type of pension in place in each of the three years.
    You need to have been a member of a pension scheme. The Civil Service one counts and would count even if you never paid any more into it.

    The question is do you have qualifying income in this tax year to cover the payments (basically earned income, dividends dont count). If this amount is greater that £40,000 then you use carry forward.

    If your wife has a limited company could that not be used to pay pension contributions to avoid all taxes - generally better than dividends.
    • bigadaj
    • By bigadaj 10th Sep 17, 11:41 AM
    • 10,671 Posts
    • 6,970 Thanks
    bigadaj
    • #4
    • 10th Sep 17, 11:41 AM
    • #4
    • 10th Sep 17, 11:41 AM
    Hi

    My OH has just opened a SIPP and will pay the maximum this tax year. We would like to take advantage of the Carry Forward rules for the last 3 years. Slight fly in the ointment is that we were on a career break for 2 of those years. During this period, OH remained ‘employed’ and a member of the Civil Service pension scheme but with zero pay and pension contributions. From our property portfolio he received £5k from holiday let properties, his other income was classified as dividends from my Ltd Co and other rental income from normal BTL's – which I understand do not count towards pension income/contributions.


    Questions:
    1. for the 2 years on career break - can OH add for each year £2,880 and receive tax credit of £720 = £3,600.

    2. Can we select which year to contribute as Carry Forward or must it be the most recent?

    Thanks for your advice.
    Originally posted by ianthy
    You can't claim on previous years income only current relevant earnings.

    Carry forward works from oldest to newest after current year allowance is used, but only comes into play once you've exceeded£40k, current years income and pension contributions.
    • ianthy
    • By ianthy 10th Sep 17, 12:47 PM
    • 88 Posts
    • 45 Thanks
    ianthy
    • #5
    • 10th Sep 17, 12:47 PM
    • #5
    • 10th Sep 17, 12:47 PM
    Hi Thanks for the answers.
    1. That’s a great point about paying via Ltd co., I need to check with my Accountant if it’s possible to use some of my company funds to pay into OH’S SIPP. He is not a Director of my company so not sure on that one.


    2. I might be missing the point, I am still unclear about how much OH can pay in using the carry forward for the years that he was on career break – with no salary but income from holiday lets of £5k. For the 2 years on career break - can OH add based on the min for each year £2,880 and receive tax credit of £720 = £3,600? Or is the sum greater depending on how much is left from his current year income after making pension contributions? Sorry if the answer is obvious.








    • TheTracker
    • By TheTracker 10th Sep 17, 1:09 PM
    • 1,123 Posts
    • 1,114 Thanks
    TheTracker
    • #6
    • 10th Sep 17, 1:09 PM
    • #6
    • 10th Sep 17, 1:09 PM
    It doesn't matter what his previous year earnings were, only current year. He could have earned £0 or £1,000,000 for each of the last two years it has no bearing on what he can contribute to a SIPP this year.

    You can ask your accountant, sure, but it's straightforward. Companies contribute to pensions to current employees. Even if he only becomes an employee of your ltd co tomorrow your company can pay him up to £120,000 in pension immediately after, provided of course your business has adequate funds after accounting for any other tax etc. Pay more if you like, there will just be no further tax relief for him. The pension contribution itself is a straight business expense pre-tax. Any contribution will be gross, HMRC won't "top up". Instead, he'll have avoided NI and IT, and your company NI and CT. Some people subscribe to the idea of having to pay 'fair value' for employee services, but who is to say what's fair? Just watch the evening news for that tale.

    Perhaps you and your OH aren't that financially close. In which case he can contribute as much of his other earnings this year as he likes, up to £120k, and save up any carry forward for next year.

    He has pretty much a blank slate.
    Last edited by TheTracker; 10-09-2017 at 1:32 PM.
    • greenglide
    • By greenglide 10th Sep 17, 1:38 PM
    • 2,895 Posts
    • 1,867 Thanks
    greenglide
    • #7
    • 10th Sep 17, 1:38 PM
    • #7
    • 10th Sep 17, 1:38 PM
    It doesn't matter what his previous year earnings were, only current year. He could have earned £0 or £1,000,000 for each of the last two years it has no bearing on what he can contribute to a SIPP this year
    If you are using carry forward then of course the earnings in previous years matters.

    You can only carry forward qualifying earnings less pension contributions.

    Rental income does not, usually, count but certain types of holiday lets "may".
    • Clifford_Pope
    • By Clifford_Pope 10th Sep 17, 2:14 PM
    • 3,382 Posts
    • 3,468 Thanks
    Clifford_Pope
    • #8
    • 10th Sep 17, 2:14 PM
    • #8
    • 10th Sep 17, 2:14 PM
    If you are using carry forward then of course the earnings in previous years matters.

    You can only carry forward qualifying earnings less pension contributions.

    .
    Originally posted by greenglide
    I don't think so. Carry forward relates to the £40,000 maximum annual contribution, not to earnings. If you earned nothing last year and made no contributions you could make contributions this year of £80,000 as long as you have earnings of £80,000 this year.
    • zagfles
    • By zagfles 10th Sep 17, 2:19 PM
    • 12,474 Posts
    • 10,461 Thanks
    zagfles
    • #9
    • 10th Sep 17, 2:19 PM
    • #9
    • 10th Sep 17, 2:19 PM
    If you are using carry forward then of course the earnings in previous years matters.

    You can only carry forward qualifying earnings less pension contributions.
    Originally posted by greenglide
    Sorry but this is rubbish. Income in previous years makes no difference whatsoever to what the OP can contribute this year.

    The tax relief limit (relevant earnings/3600) only applies to current year, it can't be carried forwards.

    The annual allowance (£40k) is a completely separate limit with different rules, and can be carried forwards from the previous 3 tax years.

    So if you earned £10k last year and put £10k into a pension, and this year you earn £70k, you can put £70k into your pension. Because £30k AA can be carried forward from last tax year.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

186Posts Today

1,287Users online

Martin's Twitter